2014 Index of Economic Freedom

Solomon Islands

overall score46.2
world rank165
Rule of Law

Property Rights30.0

Freedom From Corruption25.0

Limited Government

Government Spending21.3

Fiscal Freedom61.4

Regulatory Efficiency

Business Freedom65.2

Labor Freedom65.2

Monetary Freedom75.4

Open Markets

Trade Freedom73.0

Investment Freedom15.0

Financial Freedom30.0

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Quick Facts
  • Population:
    • 0.6 million
  • GDP (PPP):
    • $1.9 billion
    • 5.5% growth
    • 5.1% 5-year compound annual growth
    • $3,345 per capita
  • Unemployment:
  • Inflation (CPI):
    • 5.1%
  • FDI Inflow:
    • $69.3 million
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The Solomon Islands’ economic freedom score is 46.2, making its economy the 165th freest in the 2014 Index. Its score is 1.2 points higher than last year, with advancements in the control of government spending, investment freedom, and trade freedom partially offset by deteriorations in fiscal freedom, freedom from corruption, business freedom, and labor freedom. The Solomon Islands is ranked 39th out of 42 countries in the Asia–Pacific region, and its overall score is far below the world average.

The Solomon Islands was first graded in the 2009 Index, and its economic freedom score remains essentially unchanged. Improvements in three of the 10 economic freedoms include a gain of over 20 points in the management of government spending, but deteriorations in fiscal freedom, investment freedom, and overall regulatory efficiency have offset any gains. The Solomon Islands remains economically “repressed.”

Economic dynamism and development remain stifled by serious deficiencies that include poor governance and an inefficient public sector. Private-sector development is undermined by underdeveloped legal and physical infrastructure, political instability, the government’s outsized role in the economy, and the lack of political will to reform the poor regulatory framework.

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Background

The Solomon Islands is a parliamentary democracy and one of Asia’s poorest nations. Danny Philip’s election as prime minister in 2010 appeared to have stabilized a chaotic political environment. However, following allegations of corruption, Philip resigned in 2011 rather than face a motion of no confidence, and Gordon Darcy Lilo was elected shortly thereafter. Australia has had to intervene several times to defuse ethnic conflict that has held back economic development. Australia, the European Union, Japan, New Zealand, and the Republic of China provide significant financial aid. Most of the population lives in rural communities, and three-fourths of the workforce is engaged in subsistence farming and fishing. Growth depends largely on logging and timber exports.

Rule of LawView Methodology

Property Rights 30.0 Create a Graph using this measurement

Freedom From Corruption 25.0 Create a Graph using this measurement

Corruption is rampant, and public offices are seen as opportunities for personal enrichment. Many current and former lawmakers have faced a variety of corruption charges. Threats against judges and prosecutors have weakened the independence and rigor of the judicial system. Judges and prosecutors have also been implicated in scandals relating to corruption and abuse of power. Land ownership is reserved for citizens.

Limited GovernmentView Methodology

The top individual income tax rate is 40 percent, and the top corporate tax rate is 30 percent. Other taxes include a property tax and a sales tax. Overall tax revenue is equivalent to 37 percent of the domestic economy. Government expenditures amount to just over 51 percent of gross domestic output. Public debt is below 20 percent of GDP.

Regulatory EfficiencyView Methodology

The business environment discourages entrepreneurship and new investment. Completing licensing requirements still costs over twice the level of average annual income and takes about three months. The labor market is underdeveloped, and informal labor activity remains substantial. About one-third of total public spending subsidizes infrastructure development projects, many of them funded by international donors.

Open MarketsView Methodology

The average tariff rate for the Solomon Islands is 8.5 percent, and exports of some natural resources are taxed. Foreign investment is screened by the government, and investment in some sectors of the economy is prohibited. The underdeveloped financial sector is dominated by banking. A large part of the population remains outside the formal banking system. Access to credit, particularly long-term credit, continues to be very limited.

Country's Score Over Time

Bar Graph of Solomon Islands Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Solomon Islands to other economic country groups

Regional Ranking

rank country overall change
1Hong Kong90.10.8
2Singapore89.41.4
3Australia82-0.6
4New Zealand81.2-0.2
5Taiwan73.91.2
6Japan72.40.6
7Macau71.3-0.4
8South Korea71.20.9
9Malaysia 69.63.5
10Kazakhstan63.70.7
11Thailand 63.3-0.8
12Azerbaijan61.31.6
13Samoa61.14.0
14Kyrgyz Republic 61.11.5
15The Philippines60.11.9
16Sri Lanka60-0.7
17Vanuatu59.52.9
18Mongolia58.9-2.8
19Fiji58.71.5
20Indonesia58.51.6
21Tonga58.22.2
22Cambodia57.4-1.1
23Bhutan56.71.7
24India55.70.5
25Pakistan 55.20.1
26Bangladesh 54.11.5
27Papua New Guinea53.90.3
28China52.50.6
29Tajikistan52-1.4
30Laos51.21.1
31Maldives512.0
32Vietnam50.8-0.2
33Nepal50.1-0.3
34Micronesia49.8-0.3
35Burma46.57.3
36Uzbekistan46.50.5
37Kiribati46.30.4
38Solomon Islands46.21.2
39Timor-Leste43.2-0.5
40Turkmenistan42.2-0.4
41North Korea1-0.5
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